UK election: one step closer, a long march back?

On 8 May the UK will take another step closer to Europe. The spectacle of political parties struggling to put together a grouping capable of sustaining a government used to be one of those undesirable continental habits which the British electoral system kept at bay. But having swallowed coalition politics once in 2010, the UK looks to be in for a headier dose in 2015.

How far the UK’s relationship with its EU partners will figure in the negotiations between the parties is hard to gauge. UKIP notwithstanding, public spending and the constitutional demands of the Scottish Nationalists (SNP) will loom much larger. But for fifty years “Europe” has been the most divisive issue in British politics, as Harold Wilson, Margaret Thatcher and John Major can all testify. Even if swept into the corner in the coalition talks, the spectre will soon return to stalk the corridors of Westminster.

Whatever the final electoral arithmetic, the basic prospects are for either a continuing Conservative-Liberal Democrat (LibDem) coalition, or a minority Labour Government relying on varying degrees of support from the Scottish National Party (SNP) and LibDems. Either way, other small parties’ acquiescence will most likely be needed to carry on the business of government.

A new settlement?

The Conservatives under David Cameron are committed to negotiating “a new settlement for Britain in the EU”, but their manifesto gives no further details. The result would be presented as the basis for an in/out referendum before the end of 2017 – a tight timetable for an EU negotiation where the UK has yet to put its demands on the table.

The LibDems, anxious not to look undemocratic, have accepted a referendum but are committed to campaigning for the UK to stay in the EU. Labour is not proposing a referendum or a renegotiation, while the SNP is actively opposed to one and would try to insist that the UK could only leave the EU if every country in the UK – England, Scotland, Wales and Northern Ireland – had each voted for it.

So the first consequence of the election will be a large helping of uncertainty, with the EU question lurking in the sludge at the bottom of the cauldron.

For a Conservative-led administration, toil and trouble would really get going as it set out its requirements for the “new settlement”.

With the Scottish question threatening to complicate everything and UKIP prominent in the media, if not in the House of Commons, Cameron would find it difficult to present himself as an authoritative negotiator. He might be able to obtain some leverage on reluctant fellow-leaders in the European Council: the need to accommodate growing popular hostility across the EU by redressing the balance of power between Brussels and Member States; the economic cost to other Member States of “Brexit”, highlighted by a recent study; the hope of finally lancing the boil of the UK’s conflicted attitude to the EU.

With or Without an IGC

But other considerations pull strongly the other way on the 27 other Heads of Government. The biggest is the nightmare of Treaty change. Taken literally, the Conservatives’ “No! to ever-closer union” would require that ringing phrase to be excised from the Treaty of European Union, or at least disapplied to the UK, despite having been there from the beginning. “Repatriation of some powers” [unspecified] to the UK would also surely involve changes to the basic constitutional texts. This would require an Inter-Governmental Conference (IGC) of all EU countries.

With Greece’s finances posing a much more immediate threat to the integrity of both the Eurozone and the EU itself – not to mention the intractable crises on the EU’s borders from Ukraine to Libya – the distraction of an IGC is just about the last thing any other EU leader, from Angela Merkel downwards, wants. Especially not one staged for the UK to indulge its EU-neurosis. Even if the UK tried to restrict the agenda to its own concerns, there would be 27 other states at the table needing something to take home to their electorates. IGCs act by unanimity, giving everyone a chance to be as bloody-minded as they dare. And a significant number of states would also be obliged to put the results to their own referendums.

OK, then, how about reform without an IGC – the Harold Wilson gambit of 1974? Back then, just after the UK’s accession negotiations, a bit of tinkering was just about feasible. If you want to re-write chunks of it now, you’ll need a big complicated package of directives and regulations to amend or annul the bits the UK doesn’t like. All of them would need to go through the full legislative process, some even requiring unanimity. Again, the opportunity for all the other Member States and ever-active MEPs to get in on the act with their own demands would prove irresistible.

All these are reasons why Ed Miliband would strive to avoid being trapped into a renegotiation followed by a referendum. Better simply to have a referendum without the preceding agonies and loss of friends in Brussels. In any case Labour is going to need the staunchly anti-referendum SNP if it’s going to get any grip on power. If Labour needs the LibDems too (as seems likely), a party currently led by a former Brussels insider shouldn’t find it too difficult to jettison its support for a risky referendum.

But the cauldron would soon get back to boiling point, with UKIP, the Conservative opposition and the predominantly Eurosceptic media outraged at Labour, upstart Scots and fickle LibDems denying the British public their rightful say. Many Labour MPs might openly or tacitly sympathise. In the context of wider crises over the SNP’s disproportionate sway on policy, it is far from certain that a minority Labour government could defeat a Parliamentary motion calling for a referendum.

What does it all mean for business? It means a whole lot more politics in the UK, with a new, complex and difficult constitutional dimension to it, generating increasing uncertainty and risk and dampening the spirits of investors. It means the UK’s voice in Brussels is further diminished, for the time being at least, while EU policymakers try to come to terms with what is happening across the channel and how it will play out. And corporate strategists and investment advisers will have a lot more conferences to attend on the perils and prospects of “Brexit” and its disturbing economic and geopolitical consequences.

*Note: Our London team will be reporting throughout the week of the UK General Election. Follow our Twitter chat @gpluseurope for our take on how it will affect business and UK’s EU membership.